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Tax Insights

13 March 2023

Reassessment proceedings for AYs 2013–14 and 2014–15 barred by limitation as per the amended provisions of section 149 of the Act – Gujarat High Court

In brief

The Gujarat High Court adjudicated a group of petitions¹ challenging the notices issued under section 148 of the Income-tax Act, 1961 (the Act) and held that notices issued for assessment years (AYs) 2013–14 and 2014–15 for reassessment under the amended provisions of the Act are barred by limitation.

In detail

Facts

• The taxpayer is a private limited company subject to reassessment proceedings for AY 2014–15. The Tax Of f icer (TO) issued a notice under section 148 of the Act between the 1 April 2021 to 30 June 2021 period f ollowing the erstwhile procedure of reopening assessment applicable till 31 March 2021.

• Later, pursuant to the Supreme Court decision in the case of Ashish Agarwal², where the legality of such notices was cured, a show cause notice for reassessment proceedings was issued under section 148A of the Act. The TO provided relevant material based on which the case was sought to be reopened.

• The taxpayer, apart from arguing on the merits, also argued that the notice issued under section 148A of the Act was barred by limitation. The f irst proviso to section 149(1) of the Act provides that no notice under the amended provisions applicable with effect from 1 April 2021 can be issued, if such notice could not have been issued under the unamended provisions before the commencement of the Finance Act, 2021.

• The TO disregarded the arguments of the taxpayer by passing an order under section 148A(d) of the Act and issued a notice under section 148 of the Act.

Issue before the High Court

• Whether the order issued under section 148A of the Act and the notice issued under section 148 of the Act f or reassessment of income for AY 2014–15 are legally valid?

1 Special Civil Application No. 17321 of 2022

2 UOI v. Ashish Agarwal [2022] 444 ITR 1 (SC)

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Revenue’s contentions

• The Revenue placed reliance on the Supreme Court judgment in the case of Ashish Agarwal², and the Central Board of Direct Taxes (CBDT) instruction³ issued pursuant to the Supreme Court decision.

• The CBDT, as per its instruction, has issued guidelines to be followed by TOs for uniform implementation of the Supreme Court decision. These guidelines inter-alia provide that the fresh notices under section 148 of the Act can be issued for AYs 2013–14 to 2015–16 in prescribed cases where the income escaping

assessment amounts to or is likely to amount to INR5m. In respect of AY 2016–17 onwards, the notices can be issued by TOs following the amended provisions of section 149 of the Act.

• Revenue also placed reliance in the Delhi High Court decision⁴ where it held that, since initial reassessment notices to the taxpayers were issued within the extended time period, the reassessment proceedings for AY 2013–14 and income alleged to have escaped assessment is more than INR5m, the amended provisions of section 149 of the Act were satisfied.

High Court’s decision

• The Supreme Court, in the case of Ashish Agarwal², while deciding that the notices issued under the old provisions of section 148 of the Act post 1 April 2021 were issued under the amended provisions of section 148A of the Act, held that all remedies, including in section 149 of the Act for both the taxpayers as well as the Revenue, would be available.

• The High Court held that the notices issued under section 148 of the Act post 1 April 2021 will need to conf orm to the requirements of section 149(1) of the Act, wherever the extended limit is to be used.

• In other words, the High Court held that the Revenue may re-open assessment proceedings as per the amended provisions of the Act even if not more than 10 years have lapsed from the relevant AY, provided the period of six years has not expired on 31 March 2021 as per the unamended provisions of the Act.

• Regarding the instructions issued by the CBDT p ursuant to the decision of the Supreme Court in the case of Ashish Agarwal², the High Court stated that the CBDT’s interpretation of the Supreme Court’s decision is erroneous. Accordingly, the notices originally issued under section 148 of the Act would be converted into show cause notices under section 148A(b) of the Act. Thereaf ter, the fresh notice issued under section 148 of the Act read with the order under section 148A(d) of the Act would relate back to the date of the original notice issued under section 148A of the Act.

• The High Court f urther stated that the Supreme Court, in Ashish Agarwal’s case², did not straightaway convert the notices issued under the old provisions into notices issued under section 148 of the Act. The Supreme Court rather held that the said notices were deemed to be issued under the new provisions, i.e.

section 148A(b) of the Act and kept all defences open to the taxpayers as well as the Revenue.

• The High Court cited the Supreme Court decision⁵ which holds that the instructions issued by the CBDT are binding on the TOs and not on courts or taxpayers. Thus, the High Court stated that the CBDT instructions need to be ignored.

• Moreover, to address the Revenue’s reliance on the Delhi High Court decision⁴, the High Court stated that it did not endorse the view taken by Delhi High Court which is based on a premise that the notice issued under section 148 of the Act at the original stage was issued within the permissible extended time by virtue of operation of Taxation and Other Laws (Relaxation and Amendment of Certain Provision) Act, 2022 (TOLA) and notifications issued by the CBDT in this regard.

• The High Court, in its decision, held that TOLA did not alter the time limit provided under the unamended provisions of section 149 of the Act, i.e. six years from the end of the relevant AY. Notifications issued by the CBDT for the extension of various timelines and instructions issued post the Supreme Court’s decision

3 Instruction No. 1/2022 dated 11 May 2022

4 Touchstone Holdings Private Limited v. ITO [WPC 13102/2022] (Delhi High Court) dated 9 September 2022

5 Navnit Singh Lal Jhaveri v. CCIT

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in the case of Ashish Agarwal² cannot be read so as to enlarge the scope of the amended first proviso to section 149 of the Act.

• All the notices issued post 1 April 2021 will need to conform to the amended provisions of the Act which existed thereon, including limitation as defined under section 149 of the Act.

• The High Court quashed and set aside the notice and order of reassessment relating to AY 2014–15 holding that the same are barred by limitation.

The takeaways

The judgement delivered by the High Court elaborately deals with the issue of extension of old provisions relating to reassessment as per the notifications. It also covers the issues arising post the Supreme Court’s decision in Ashish Agarwal’s case² and the CBDT instructions issued pursuant to that decision.

It is expected that the reassessment controversy relating to the applicability of the TOLA on the old provisions of reassessment proceedings post 1 April 2021 would again reach the Supreme Court for a f inal decision.

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In this document, “PwC” refers to PricewaterhouseCoopers Private Limited (a limited liability company in India having Corporate Identity Number or CIN : U74140WB1983PTC036093), which is a member firm of PricewaterhouseCoopers International Limited (PwCIL), each member firm of which is a separate legal entity.

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